Encore Capital Group Inc · NASDAQ:ECPG

Encore Capital — Q1 2014 Earnings Presentation

28 slides from Encore Capital's earnings presentation, May 8, 2014

  1. Slide 1: Encore Capital Group, Inc. Q1 2014 Earnings Call

    Encore Capital Group, Inc. Q1 2014 EARNINGS CALL Exhibit 99.1

  2. Slide 2: Cautionary Note About Forward-Looking Statements

    PROPRIETARY 2 CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not historical facts, including, most importantly, those statements preceded by, or that include, the words “will,” “may,” “believe,” “projects,” “expects,” “anticipates” or the negation there

  3. Slide 3: Encore Delivered Record Quarterly Earnings

    PROPRIETARY 3 ENCORE DELIVERED RECORD QUARTERLY EARNINGS Economic EPS** $1.08 GAAP EPS* $0.82 GAAP Net Income* $23 million Adjusted Income** $29 million Estimated Remaining Collections of $4.8 billion * Attributable to Encore ** Please refer to Appendix for reconciliation of Economic EPS, Adjusted E

  4. Slide 4: Cabot Was the Main Driver for Q1 Deployments

    PROPRIETARY 4 CABOT WAS THE MAIN DRIVER FOR Q1 DEPLOYMENTS Q1-2014 Deployments $ millions Refinancia $11 Propel $19 Core US Purchasing $105 Cabot $143 Cabot (Marlin) $208 Total $487

  5. Slide 5: We Remain Focused on Delivering Top Quartile Returns

    PROPRIETARY 5 WE REMAIN FOCUSED ON DELIVERING TOP QUARTILE RETURNS Management Team • Learning Organization • Principled Intent Growth, Margin Expansion, Free Cash Flow, PE Multiple Expansion Top Quartile Total Shareholder Return  Specialized call centers  Efficient international operations  Inter

  6. Slide 6: Cabot's Contribution to Overall Earnings Continues to Grow

    PROPRIETARY Cabot’s Economic EPS Impact CABOT’S CONTRIBUTION TO OVERALL EARNINGS CONTINUES TO GROW 6 CABOT INDIA OPERATIONS UPDATE 0.17 0.18 0.21 0.00 0.05 0.10 0.15 0.20 0.25 Q3 2013 Q4 2013 Q1 2014 $  India call center began supporting Cabot on schedule, in January  Cabot collections in India ha

  7. Slide 7: Investment Rationale

    PROPRIETARY Investment rationale Creates the UK market leader by ERC Strong growth profile Enhanced, sustainable profitability • Increases Encore's exposure to the high-growth UK market • Strong relationships with key vendor banks make Cabot+Marlin well-placed to increasingly become the purchaser of

  8. Slide 8: Propel Continues to Grow and Contribute to Encore

    PROPRIETARY PROPEL CONTINUES TO GROW AND CONTRIBUTE TO ENCORE Capital Deployed 0 20 40 60 80 Q1 2013 Q2 2013 Q3 2013 Q4 2013* Q1 2014 Total Revenue 0 2 4 6 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Operating Income 0 1 2 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 8 $137 million of capital deployed in the

  9. Slide 9: Propel Completed Acquisition of Nationwide Tax Lien Portfolio & Servicing Platform

    PROPRIETARY 9 PROPEL RECENTLY COMPLETED THE ACQUISITION OF A NATIONWIDE TAX LIEN PORTFOLIO & SERVICING PLATFORM Acquisition  National acquirer of delinquent tax liens  $43M asset purchase of portfolio and servicing platform  Staff of experienced, talented employees Opportunity • Expansion of Prop

  10. Slide 10: Asset Acceptance Collections Outperformed Plan, Integration Nears Completion

    PROPRIETARY Asset Acceptance Performance ASSET ACCEPTANCE COLLECTIONS OUTPERFORMED PLAN, INTEGRATION NEARS COMPLETION 10 O p e rat io n a l in te g rat io n a n d s y n e rg y ca p tu re Q4 2013 Q1 2014 HR Integration Q2 2014 Q3 2014 Payroll Integration Support Function Rationalization & Technology

  11. Slide 11: Detailed Financial Discussion

    11 Detailed Financial Discussion

  12. Slide 12: The AACC and Cabot Acquisitions Accelerated Q1 Collections

    PROPRIETARY 12 THE AACC AND CABOT ACQUISITIONS ACCELERATED Q1 COLLECTIONS 241 246 230 270 278 380 351 397 0 100 200 300 400 500 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 $M Collections Summary 112 117 104 127 117 119 103 142 115 111 113 122 134 154 155 151 14 18 13 21 27 40 26

  13. Slide 13: Strong Collections Led to Solid Revenue Growth

    PROPRIETARY STRONG COLLECTIONS LED TO SOLID REVENUE GROWTH Revenue From Business Lines 13 $- $50 $100 $150 $200 $250 $300 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Core US Cabot Propel Refinancia $M 141 145 144 145 156 236 237 254 Channel Q1 2014 Rev Rec Q1 2013 Rev Rec Cabot 6

  14. Slide 14: Cost to Collect Fully Reflects AACC's and Cabot's Operations

    PROPRIETARY ENCORE’S COST TO COLLECT FULLY REFLECTS AACC’S AND CABOT’S OPERATIONS 14 Overall Cost to Collect* 39% 40% 43% 36% 38% 40% 42% 38% 30% 35% 40% 45% Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 ⃰ Cost to Collect is Adjusted Operating Expenses / Dollar collected. See Appen

  15. Slide 15: Cost to Collect in Internal Legal Is Declining

    PROPRIETARY AFTER SEVERAL QUARTERS OF INVESTMENT, COST TO COLLECT IN INTERNAL LEGAL IS DECLINING 15 Legal Outsourcing Cost to Collect 0% 10% 20% 30% 40% 50% Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Legal Outsourcing Collections 80 100 120 140 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2

  16. Slide 16: Collections Growth and Cost Improvements Led to Improved Cash Flows

    PROPRIETARY COLLECTIONS GROWTH AND COST IMPROVEMENTS LED TO IMPROVED CASH FLOWS 16 148 151 135 174 174 231 206 250 0 50 100 150 200 250 300 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP Adjusted EBITDA* $M

  17. Slide 17: The Marlin Acquisition Added Meaningfully to ERC in Q1

    PROPRIETARY Estimated Remaining Collections $M 1,983 1,890 1,967 1,911 1,789 2,577 3,990 4,151 952 1,445 607 0 1,000 2,000 3,000 4,000 5,000 6,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 17 THE MARLIN ACQUISITION ADDED MEANINGFULLY TO ERC IN Q1 Encore Asset Acceptance* 2,741

  18. Slide 18: Cabot Contributed $0.21 to Encore's Q1 Economic EPS

    PROPRIETARY CABOT CONTRIBUTED $0.21 TO ENCORE’S Q1 ECONOMIC EPS In 000’s except per share amounts Janus Encore Europe Holdings EEH Consolidated Revenue / other income $ 62,520 - $ 62,520 Total Expenses (39,576) - (39,576) EBITDA $ 22,944 - $ 22,944 Non-PEC Interest Expense (21,776) - (21,776) PEC In

  19. Slide 19: Encore's Q1 Economic EPS Set a Record of $1.08

    PROPRIETARY ENCORE’S Q1 ECONOMIC EPS SET A RECORD OF $1.08 $0.82 $1.02 $1.08 $0.05 $0.15 Net income per diluted share attributable to Encore Net non-cash interest and issuance cost amortization, net of tax Acquisition related fees, net of tax Adjusted income per diluted share attributable to Encore

  20. Slide 20: Completed 2021 Convertible Note Offering and Call Spread Restrike on 2017 Notes

    PROPRIETARY COMPLETED 2021 CONVERTIBLE NOTE OFFERING AND COMPLETED CALL SPREAD RESTRIKE ON 2017 NOTES 20 Date sold Amount Additional Total note size Coupon rate Initial conversion price New conversion price Net cost of call spread New warrant Cost of restrike Potential value creation* 11/27/2012 $10

  21. Slide 21: Propel Has Successfully Securitized Tax Liens in Texas

    PROPRIETARY 21 PROPEL HAS SUCCESSFULLY SECURITIZED TAX LIENS IN TEXAS Security • $134 million Texas Tax Lien Collateralized Notes Propel Securitization Price • EDSF (Eurodollar Synthetic Forward rate) + 95 bps = 1.44% Pricing Considerations • Attractive risk-adjusted return on Propel’s assets • AAA

  22. Slide 22: Encore's Long-Term Prospects Continue to Be Favorable

    PROPRIETARY 22 ENCORE’S LONG-TERM PROSPECTS CONTINUE TO BE FAVORABLE Operating Results & Deployment A culture of constant improvement drives improved results Liquidity & Capital Access Strong liquidity and access to capital enhance our ability to take advantage of consolidating markets and new oppor

  23. Slide 23: Appendix

    (=~ encore Wane CAPITAL crour Appendix

  24. Slide 24: Non-GAAP Financial Measures

    PROPRIETARY 24 NON-GAAP FINANCIAL MEASURES This presentation includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included information concerning

  25. Slide 25: Reconciliation of Adjusted Income and Economic / Adjusted EPS

    PROPRIETARY 25 RECONCILIATION OF ADJUSTED INCOME AND ECONOMIC / ADJUSTED EPS Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS (Unaudited, In Thousands, except per share amounts), Three Months Ended March 31, 2014 2013 $ Per Diluted Share – Accounting Per Diluted Share – Econ

  26. Slide 26: Reconciliation of Adjusted EBITDA to GAAP Net Income

    PROPRIETARY Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 26 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 12/31/13 3/31/14 GAAP net income, as reported 11,406 16,596 21,308 20,167 19,448 11,012 21,064 22,216 18,830 (Gain) loss from di

  27. Slide 27: Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses

    PROPRIETARY Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses (Unaudited, In $ Thousands) Three Months Ended 27 RECONCILIATION OF ADJUSTED OPERATING EXPENSES 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 12/31/13 3/31/14 GAAP total operating expenses, as reported 102,809 10

  28. Slide 28: Encore Capital Group, Inc. Q1 2014 Earnings Call

    Encore Capital Group, Inc. Q1 2014 EARNINGS CALL

Encore Capital Group — Q1 2014 Earnings Presentation on 6ix